Fifth Point
The Fifth Point was a part of Governor-General Ezra Gallivan's Creative Nationalism program designed to reduce economic inequality by encouraging the creation of small businesses. The name comes from Gallivan's inaugural speech following his elevation to the governor-generalship in February 1888, a five-point program whose fifth point was a pledge that "new means will be found for the people to ... share more fully in the profits their work made possible." When Gallivan made his promise, the more radical members of his People's Coalition hoped, and more conservative members of other parties feared, that he meant to adopt Neiderhofferism, a radical economic-political philosophy based on the ideas of Erich Neiderhoffer, who wished to see businesses come under the control of their employees. Instead, Gallivan proposed that the National Financial Administration, a government-run lending agency, begin offering start-up loans to new businesses. Under the Fifth Point legislation, which passed the Grand Council in 1891, the N.F.A. would make loans to those individuals who wished to establish businesses. The N.F.A. would be granted the right to float bonds at preferred rates, and would use the money so obtained for the loans. The new entrepreneur would become a partner of the government in his operation -- depending on the circumstances, the government would receive from ten to forty-nine percent of the new company's common stock, as well as the bonds for the loan. The first bond issue, totalling N.A. £46 million, was managed by Henry Clews in New York City and J.P. Morgan in London. Morgan's involvement established him as the leading banker in the English-speaking world, a position he held for almost a quarter of a century. The groundwork for the new program was laid by Julius Nelson, who was appointed administrator of the N.F.A. by Gallivan in 1889. Even as Gallivan guided the legislation through the Grand council, Nelson set to work restructuring the agency, setting up new confederation-level offices, and arranging for new financings. Under the terms of most of the contracts reached by the N.F.A. under Nelson, the agency had the option of selling its stock to the entrepreneur at current market value within ten years of its issuance, provided the value was at least ten percent over the original price. The N.F.A. could also sell shares to outsiders, or on the Broad Street stock exchange. The first important financings began in 1891, after final passage of the Fifth Point legislation and the N.F.A.'s first bond issue. New firms incorporated in 1891 included the dry goods chain Kenton, Ltd., the flour producer Indiana Milling, Ltd., and the construction company Parkins, Ltd.. Kenton, Ltd. proved to be a spectacular success, so that the N.F.A.'s stock in the company came to worth a great deal. By the end of Gallivan's first term in 1892, financings by the N.F.A. had risen from 21 per year to 155; by the end of his second term in 1897, they had risen to 280. The Fifth Point proved to be a great success, and it had far more important implications than Gallivan himself realized. The 1890s saw the rise of a new class of ambitious and talented young men who wished to start their own companies, and who applied to the N.F.A. for loans rather than commercial banks, since the government agency had lower qualifications and would accept equity as well as bonds as collateral and payment. Given the economic boom of the 1890s, which the N.F.A. both stimulated and benefitted from, most of agency's loan recipients were able to succeed at least moderately; the failure rate for N.F.A. loans fell steadily throughout the decade. Thus, the Fifth Point "worked" in the sense that it did what Gallivan wanted it to do: contribute to the economic growth of the C.N.A. by encouraging new business creation. Despite the Fifth Point's success, the program never lacked for critics. Andrew de Molay, head of the New York Bankers Association, accused Nelson of "stealing business from commercial banks, and not serving the purpose for which he has been named to office. Almost every N.F.A. financing could have been handled by a member bank of this Association, but the borrowers went to Nelson instead, since by law his rates are lower than ours. This is not creating new business; it is taking money from one pocket and putting it in the other." In 1900, during Gallivan's third term, Samuel Frier of the Textile Union argued that Nelson's own low failure rate statistics indicated the extent of his failure. "The N.F.A. was not supposed to be a money-making operation, but a service to the people. A commercial bank might be pleased to show a failure rate of 13.3. To us it indicates that Mr. Nelson has not been taking the kind of risks he should. In 1899 the N.F.A. granted 314 loans and financings, nine more than the previous year. Mr. Nelson does not tell us that the N.F.A. processed 2,539 applications and culled the 314 from that amount. What of the other 2,225 men who failed Mr. Nelson's test? These are the people the Governor-General told us were to be helped, and these are the men the N.F.A. ignores." A newspaper columnist named Milton Fields opined that the N.F.A. ought to be making 30,000 startup loans a year, not 300. ---- Sobel's sources for the Fifth Point include his own The Fifth Point: Ezra Gallivan and His Creative Nationalism (New York, 1967); and Gallivan's own memoirs, Under Fire and the Sword (New York, 1898); as well as Julius Nelson's Financing a Nation: My Years at the N.F.A. (New York, 1910); Nelson Perkins' Behind the Mask: The Life and Works of Julius Nelson (New York, 1920); Case Springer's The Remembered Man: Nelson in Action (New York, 1965); Jules Whitney's The N.F.A. Story (New York, 1966); John Friendly's A History of the National Financial Administration (New York, 1967); and Rupert Price's Julius Nelson of the N.F.A. (New York, 1967). Category:Legislation of the C.N.A.